Research

May 5, 2011

Choosing Financial Products: Looks Do Matter

We like to think we’re rational about money. We go for the credit card or mortgage that has the lowest interest rate.

Think again. Our moods, emotions, and other reactions to aesthetic cues play a decisive role in financial decisions, according to innovative research by Suzanne Shu at UCLA and Claudia Townsend at the University of Miami.

“Everybody expects that it [aesthetics] is not going to influence them, so it’s extra surprising when it does,” Shu said in a recent interview.

The marketing professors’ results carry a message for anyone interested in financial literacy. Their research subjects thought twice about their decisions after receiving very subtle references to aesthetics. In other words, when people are alerted to their unconscious reactions to how something looks, they adjust their thinking to guard against being overly influenced by the aesthetics.

Experiment 1

The professors devised three tests in which they compared the valuations that people put on companies that had well-designed annual reports or unattractive annual reports.

Designing the experiments was tricky, but it’s worthwhile to understand the details.

In the first, each subject was simply asked which benchmarks, such as profits and revenues, they take into account to assess a company’s financial success. Half of the subjects were also asked if aesthetics and rumors circulating about the company factored into their decisions. Then all subjects were given annual reports so they could evaluate the companies.

The result: those who weren’t cued about aesthetics in the questionnaire valued companies that had attractive annual reports higher than those who were cued. Shu and Townsend concluded that simply asking about aesthetics put the subjects on guard, so they weren’t susceptible to those “below-the-surface” influences.

Practical Applications

Shu believes her findings may apply to any financial product. For example, we may choose a mutual fund because we like the manager’s website. Or we may select an affinity card because we like how our college logo looks on the front.

Affinity cards would make for an interesting experiment, she said: “People probably value it more and hold onto it and would be willing to pay an annual fee and, yes, perhaps they would even use it more.”

Experiment 2

In the second experiment, they didn’t mention aesthetics at all. Instead, they asked each subject to evaluate a single company, based on its annual report. The companies made either vases or bubble wrap. The thinking behind this approach was that design is clearly more important to producing a marketable vase than bubble wrap.

But it made no difference to the subjects who evaluated the vase company whether they got the attractive or unattractive annual report. However, the bubble-wrap company was rated higher if the subject received the pretty version of the annual report.

Isn’t this counterintuitive? No. Shu said the result was consistent with the first experiment’s outcome.

“By thinking about a company that makes an aesthetic product” – a vase – “they think I shouldn’t let aesthetics influence me,” she said. The vase, like the cue in the questionnaire, puts people on guard for irrational influences.

The final experiment tested MBA students. Each received a packet of four pairs of annual reports and was given up to an hour to value them. The companies in each pair were very similar financially, and each pair was in the same industry: agriculture, manufacturing, consumer products, and electronics. But one of the agricultural companies had an attractive annual report, one a poorly-designed report. And so on for each pair.

The MBAs – trained financial analysts – put a higher value on the companies that had pretty annual reports.